Phico Group, Inc. v. US, Civ. A. No. 86-1268.

• Decision Date: 20 May 1988
• Docket Number: Civ. A. No. 86-1268.
• Citation: 692 F. Supp. 437
• Parties: PHICO GROUP, INC. and Consolidated Subsidiaries, Plaintiff, v. The UNITED STATES of America, Defendant.
• Court: U.S. District Court — Middle District of Pennsylvania

692 F. Supp. 437

PHICO GROUP, INC. and Consolidated Subsidiaries, Plaintiff, v. The UNITED STATES of America, Defendant.

Civ. A. No. 86-1268.

United States District Court, M.D. Pennsylvania.

May 20, 1988.

Myron C. Baum, Caplin & Drysdale, Chartered, Washington, D.C., Ronald M. Katzman, Goldberg, Katzman & Shipman, P.C., Harrisburg, Pa., for plaintiff.

Frederick Martin, Asst. U.S. Atty., Lewisburg, Pa., Stuart J. Glick, Robert L. Gordon, U.S. Dept. of Justice, Washington, D.C., for defendant.

MEMORANDUM

RAMBO, District Judge.

Before the court are the parties' cross motions for summary judgment. The motions have been fully briefed and are ripe for disposition.

Background

The parties have stipulated as to the following facts in this case:

1. Phico Group, Inc. is a corporation organized under the laws of the Commonwealth of Pennsylvania. It is the successor in interest to the Pennsylvania Hospital Insurance Company and has its principal place of business in Mechanicsburg, Pennsylvania. Pennsylvania Hospital Insurance Company was organized under the laws of the Commonwealth of Pennsylvania in January, 1976 and commenced operations in March, 1976. The term "plaintiff" will be used interchangeably herein to refer to Phico Group, Inc. or to Pennsylvania Hospital Insurance Company.

2. Plaintiff files its federal income tax return on the basis of a calendar year.

3. For the year 1982 plaintiff filed a federal income tax return which showed an overpayment of tax in the amount of $449,235. On that return plaintiff requested that the overpayment be credited to its income tax liability for the year 1983.

4. During 1983 plaintiff made estimated, federal income tax payments for that year totalling $1,100,000.

5. On or about February 9, 1984 plaintiff, pursuant to section 6425 of the Internal Revenue Code, filed with the Internal Revenue Service a "Corporation Application for Quick Refund of Overpayment of Estimated Tax" on IRS Form 4466, the form prescribed therefor. The application requested a refund of $1,539,235, which consisted of:

a. The $1,100,000 estimated taxes paid in 1983, plus

b. The amount of tax overpaid on its 1982 return which was credited to 1983, $449,235 less $10,000, the amount of tax which it computed to be due and payable for the year 1983.

6. The Internal Revenue Service Center in Philadelphia, Pennsylvania notified plaintiff by letter dated February 29, 1984 that its application for a quick refund was rejected because "amounts due on other accounts exceed the overpayment."

7. On March 12, 1984 the same Internal Revenue Service Center sent plaintiff a demand for payment of federal income taxes in the amount of $5,470,863.63 for the year 1977.

8. Plaintiff, in fact, had no federal income tax liability outstanding for 1977 or any other year on February 29, 1984, when its application was denied, or on March 12, 1984, when the foregoing demand was made.

9. On or about June 1, 1984 plaintiff filed with the Internal Revenue Service a claim for refund of the $1,100,000 in estimated tax paid during 1983 with interest thereon.¹

10. On July 6, 1984 the Internal Revenue Service refunded $1,100,000 in estimated, federal income tax payments for 1983 to plaintiff.

11. On or about August 7, 1984 plaintiff duly filed its federal income tax return for the year 1983 with the Internal Revenue Service. By filing a Form 7004 on March 12, 1984 plaintiff had obtained an automatic extension of time to file its return to September 15, 1984. This return showed a net loss by plaintiff for the year 1983 in the amount of $9,561,655, income tax due in the amount of $9,041, and an overpayment of $440,194.

12. On December 8, 1985 the Internal Revenue Service denied plaintiff's claim for interest on the refund that the Internal Revenue Service paid to plaintiff on July 6, 1984. The Internal Revenue Service "disallowed the claim because no interest is allowable on monies refunded prior to the filing of the return per section 6611 of the Internal Revenue Code." Exhibit E of the Stipulation.

13. Plaintiff claims it is entitled to interest on the sum of $1,100,000 from March 15, 1984, the date it asserts is made applicable by section 6611(d) of the Internal Revenue Code, to July 6, 1984, the date on which refund of such amount was made, together with interest on such unpaid interest as provided by law.

14. Defendant claims that plaintiff is not entitled to interest in any amount with respect to said sum of $1,100,000.

Discussion

Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Because the parties agree that there is no genuine issue of material fact, the court must only determine which of the movants is entitled to a judgment as a matter of law. In making that determination the court will address the issue of whether defendant was obligated to pay interest on plaintiff's refund, bearing in mind the fact that defendant made an erroneous disposition of plaintiff's § 6425 application for adjustment and the fact that defendant paid the refund to plaintiff before plaintiff filed its return. Little guidance is provided by case law to assist the court in addressing this issue. Nevertheless, the court finds that the meaning of the pertinent statutes is clear.

The section of the Internal Revenue Code establishing defendant's obligation to pay interest on refunds to taxpayers provides, in part, as follows:

(a) Rate. Interest shall be allowed and paid upon any overpayment in respect of any internal revenue tax at the overpayment rate established under section 6621.

(b) Period. Such interest shall be allowed and paid as follows:

(1) Credits. In the case of a credit, from the date of the overpayment to the due date of the amount against which the credit is taken.

(2) Refunds. In the case of a refund, from the date of the overpayment to a date (to be determined by the Secretary) preceding the date of the refund check by not more than 30 days, whether or not such refund check is accepted by the taxpayer after tender of such check to the taxpayer. The acceptance of such check shall be without prejudice to any right of the taxpayer to claim any additional overpayment and interest thereon.

(d) Advance payment of tax, payment of estimated tax, and credit for income tax withholding. The provisions of section 6513 (except the provisions of subsection (c) thereof), applicable in determining the date of payment of tax for purposes of determining the period of limitation on credit or refund, shall be applicable in determining the date of payment for purposes of subsection (a).

(e) Income tax refund within 45 days after return is filed. If any overpayment of tax imposed by subtitle A is refunded within 45 days after the last date prescribed for filing the return of such tax (determined without regard to any extension of time for filing the return) or, in case the return is filed after such last date, is refunded within 45 days after the date the return is filed, no interest shall be allowed under subsection (a) on such overpayment.

26 U.S.C. § 6611((c) Repealed. Pub. L. 85-866, Title I, § 83(c), Sept. 2, 1958, 72 Stat. 1644).

Subsection (e) of § 6611 is plainly applicable to the facts in the case at bar. It is undisputed that the tax which plaintiff overpaid in 1983 was the type of tax imposed by subtitle A.² Secondly, it is undisputed that by filing its 1983 income tax return on August 7, 1984, plaintiff filed its return after the last day prescribed for filing the return.³ Finally, it is undisputed that plaintiff's overpayment was refunded by defendant before the expiration of forty-five days after plaintiff filed its return. In fact, the refund was made before plaintiff even filed its return. In light of these facts defendant was correct, under § 6611(e), in not paying interest on plaintiff's refund.

Plaintiff argues that such an application of subsection (e) renders subsection (d) of § 6611 meaningless. This argument is unpersuasive. The purpose of subsection (d) is to assist in the determination of the date of overpayment in the event that the taxpayer is entitled to interest. Subsection (e), on the other hand, bears directly on the taxpayer's entitlement to interest and has nothing to do with determining the date of overpayment. If the provisions of subsection (e) are applicable to a given case, then the date of overpayment is unimportant. The date of overpayment, fixed according to subsection (d), only becomes important if the government has refunded an overpayment outside the time period prescribed in subsection (e). Applying subsection (e), therefore, does not deprive subsection (d) of meaning. Rather, the two subsections are applicable in different circumstances.

Plaintiff also argues that subsection (e) applies only to a situation in which the defendant refunds an overpayment pursuant to the filing of a return. Because plaintiff obtained its refund through the filing of a claim for refund, plaintiff argues, subsection (e) is not applicable in this case. Plaintiff's interpretation has no basis in the clear language of subsection (e). Reference to the filing of a return in (e) serves only the purpose of providing a point of reference by which the time taken by the defendant to refund an overpayment is measured. No mention is made in (e) of the means by which the refund is obtained. Thus, the fact that plaintiff obtained its refund through a claim for refund, as opposed to an income tax return, does not disturb the conclusion that defendant relieved itself of an obligation to pay interest by refunding the overpayment before plaintiff had even filed its return.

Perhaps the argument on which plaintiff relies most heavily is that barring its claim for...